JAMES et al v. GLOBAL TEL*LINK CORPORATION et al
Filing
181
OPINION. Signed by Judge William J. Martini on 8/6/18. (gh, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
BOBBY JAMES, et al., on behalf of
themselves and all others similarly
situated, ,
Docket No.: 13-4989
Plaintiffs,
OPINION
v.
GLOBAL TEL*LINK CORP., INMATE
TELEPHONE SERVICE, and DSI-ITI
LLC,
Defendants.
WILLIAM J. MARTINI, U.S.D.J.:
Plaintiffs bring this class action against Defendant Global Tel*Link and its
subsidiaries (collectively, “GTL”) in connection with the company’s provision of inmate
calling services (“ICS”) to state and county correctional facilities in New Jersey. GTL
moves for summary judgment of all four remaining claims pursuant to Federal Rule of
Civil Procedure 56. Plaintiffs have cross-moved for partial summary judgment as to
whether GTL violated the Takings Clause of the Fifth Amendment. U.S. Const. amend.
V. No oral argument was held. Fed R. Civ. P. 78(b). For the following reasons, both
competing motions for summary judgment are DENIED. This case will proceed to trial.
I.
BACKGROUND
The following facts are described in further detail in the Court’s Opinion granting
class certification under Rule 23. ECF No. 179. Since 2006, GTL has been the exclusive
provider of ICS to all prisons and jails operated by the State of New Jersey and to each
county facility except Passaic. These include 20 New Jersey Department of Corrections
(“DOC”) facilities and 21 county facilities.1 See Taylor Decl. in Supp. Cert. (“Taylor
1
New Jersey facilities generate roughly five percent of GTL’s revenue. See Taylor Decl., Ex. E,
1
Decl.”), Ex. E. New Jersey law classifies GTL as an “alternative operator service”
(“AOS”),2 subject to regulation by the New Jersey Board of Public Utilities (“BPU” or
“the Board”). GTL’s interstate calling services are subject to regulation by the Federal
Communications Commission (“FCC”).3 Historically, however, federal and state
regulators have declined to interpose rate limits on New Jersey correctional facilities.4
Plaintiffs are inmates of New Jersey correctional facilities between 2006 and 2016
who used GTL’s phone services, as well as non-inmates (generally, their friends and
family) who used GTL’s services to communicate with inmates during that time.5
Plaintiffs allege that, in the absence of rate regulation, they were charged excessive rates
and fees for ICS. They estimate they were overcharged more than $150 million over the
class period. See Taylor Decl., Ex. M., Extended Rebuttal Report of Michael F. Finneran,
at 2.
In 2005, GTL won an exclusive contract to provide ICS for the DOC and most
county correctional facilities. Remaining counties, except for Passaic, formed
independent contracts with GTL or one of its subsidiaries. As part of these contracts,
GTL paid the facilities “site commissions,” defined as “a straight percentage of all
originating, billable revenue.” Taylor Decl., Ex. J, Report of Melissa Copeland at 5.
Because commissions produce substantial revenue for the State and counties, ICS
contracts are often awarded to the provider who offers the highest commissions to
facilities.6 See, e.g., Taylor Decl., Ex. Q, Rebuttal Report of Dr. Roy Epstein, ¶¶ 24-27;
Van Nostrand Decl., Ex. 11, Essex County Decision Memorandum (June 6, 2006)
(“[T]his is a revenue generating arrangement.”). Stephen Yow, GTL’s CFO, agreed that
site commissions were likely the most important feature of ICS service agreements. Yow
Dep. Tr. 42:4-5. GTL offered a range of commission options within each contract; the
DOC chose to receive a 40% commission for calls from state facilities. Most counties
Report of Michael Finneran at 2.
2
The authorizing statute defines an “alternate operator service provider” as a “non-facilities
based telecommunications carrier who is a reseller leasing lines from local exchange carriers and
interexchange carriers and who, using these leased facilities along with their own operators,
provides operator-assisted services.” N.J.S.A. § 48:17-23.
3
Approximately 90% of calls handled by GTL are intrastate. Taylor Decl., Ex. G (Yow Dep.,
94:20-95:6)
4
See, e.g., Global Tel*Link v. FCC, 866 F.3d 397, 401 (D.C. Cir. 2017) (“[P]rior to the Order
under review in this case, the Commission had never sought to impose rate caps on intrastate
calls.”); Maxwell Slackman, Calling from Prison: Economic Determinants of Inmate Payphone
Rates, 10 J.L. Econ. & Pol'y 515, 524 (2014).
5
For a more a precise definition of the Class, see the Court’s Opinion on class certification. ECF
No. 179.
6
For instance, Atlantic County’s 2007 RFP stated that “the responsive and responsible bidder
offering the Highest Commission Rate to the County,” which could be “not less than 50
percent.” Copeland Report at 7.
2
selected options that paid the highest commissions, either 55% and 56%. See, e.g.,
Epstein Report ¶ 25.
To earn a profit, GTL paired higher commission rates with higher per-minute
rates, surcharges, and “ancillary fees” incurred by GTL’s end users. See, e.g., Yow Dep.
170:16-20. Ancillary fees included, for instance, a 19% fee each time a non-inmate set up
or deposited funds into a GTL Advance Pay account by telephone.7 Taylor Decl., Ex. H,
Baker Dep. Tr. 37:8-38:11. As Mr. Yow explained, “imposing deposit fees is a way to
generate enough revenue from the facility to administer the commission they’re
expecting and also to cover all the other costs that we have to provide the service in that
jail.” Yow Dep. 170:16-20; see, e.g., Dr. Epstein Rebuttal Report (“[D]eposit fee revenue
can be used to recoup site commissions paid to facilities.”).
Plaintiffs argue that this “revenue sharing” configuration resulted in calling rates
and fees that were far in excess of the actual cost of providing ICS. They claim, for
example, that GTL was charging as much as $1.00 per minute for calling time that GTL
purchased from telecom providers for as little as $.00018 per minute. Pls.’ Br. Supp. Cert.
at 1; Van Nostrand Decl., Ex. I, Decl. Michael Barth ¶ 8. Because GTL’s contracts with
the DOC and counties were exclusive, Plaintiffs—unlike normal telephone users—could
not choose among different providers, and generally paid amounts far in excess of
industry standards. See, e.g., Global Tel*Link, 866 F.3d at 401 (“ICS per-minute rates
and ancillary fees together are extraordinarily high.”). In effect, GTL operated a statesanctioned monopoly that generated substantial revenue for the government and GTL by
imposing artificially high rates and fees on inmates and their loved ones. See id.
(“Winning ICS providers thus operate locational monopolies with a captive consumer
base of inmates and the need to pay high site commissions.”)(citation omitted).
In 2013, when this case was filed, there were roughly 23,000 inmates in New
Jersey correctional facilities.8 Ms. King’s challenges are typical of many individuals who
could not afford to stay connected with their incarcerated loved ones. As the FCC has
formally acknowledged, the social and economic impacts of ICS are grave:
Excessive ICS rates also impose an unreasonable burden on some of the
most economically disadvantaged in our society. Families of incarcerated
individuals often pay significantly more to receive a single 15-minute call
from prison than for their basic monthly phone service. We have received
7
An Advance Pay account is simply a prepaid account set up by a non-inmate (usually a family
member) providing funds for the inmate to call a particular number or set of numbers.
Alternative payment methods, such as sending a check by mail, Western Union, or (at certain
facilities) paying at on-site kiosks, were available, but only 10-15 percent of class members used
these methods. Baker Dep. Tr. 37:8-38:11.
8
www.state.nj.us/corrections/pdf/offender_statistics/2013/Total%20NJDOC%20Inmates%20201
3.pdf.
3
tens of thousands of comments from individuals, including many personal
stories from inmates, their family members and their friends about the high
price of staying in touch using ICS. These rates discourage communication
between inmates and their families and larger support networks, which
negatively impact the millions of children with an incarcerated parent,
contribute to the high rate of recidivism in our nation’s correctional
facilities, and increase the costs of our justice system. Familial contact is
made all the more difficult because “mothers are incarcerated an average of
160 miles from their last home, so in-person visits are difficult for family
members on the outside to manage.”
FCC Report & Order & Notice of Further Rulemaking, FCC 13-113 (Sept. 26, 2013).
Since the FCC issued the above Report and Plaintiffs filed this lawsuit, New
Jersey’s legislature has taken measures to eliminate the practices at issue and to reduce
the future costs of ICS to end users. In August 2016, the legislature enacted a statute
prohibiting site commissions in all state, county, and private correctional facilities in New
Jersey; limiting rates to 11 cents per minute for domestic debit, prepaid, and collect calls,
and outlawing “any service charge or additional fee exceeding the per minute rate,
including, but not limited to, any per call surcharge, account set up fee, bill statement fee,
monthly account maintenance charge, or refund fee.” N.J.S.A. § 30:4-8.12. GTL now
charges roughly 5 cents per minute for all calls. Taylor Decl., Ex. K.
The Instant Motions for Summary Judgment
The parties should be familiar with the procedural history of this case. A detailed
account is nonetheless provided in the Court’s Opinion granting class certification. ECF
No. 179. The remaining claims include:
• Count One: Violation of CFA, N.J.S.A. § 56:8-2, for “unconscionable
business practices”;
• Count Two: Violation of CFA Disclosure Requirements, N.J.S.A. § 56:8176(h);
• Count Four: Unjust Enrichment; and
• Count Six: Violation of the Takings Clause, brought under 42 U.S.C. §
1983.
GTL moves for summary judgment on all claims. Plaintiffs oppose and crossmove for summary judgment on their Takings claim. This Opinion disposes of both
motions.
4
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 56 provides for summary judgment “if the movant
shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986); Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir.
1990). A factual dispute is genuine if a reasonable jury could find for the non-moving
party, and is material if it will affect the outcome of the trial under governing substantive
law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court considers all
evidence and inferences drawn therefrom in the light most favorable to the non-moving
party. Andreoli v. Gates, 482 F.3d 641, 647 (3d Cir. 2007). “When confronted with
cross-motions for summary judgment, the court must rule on each party’s motion on an
individual and separate basis, determining, for each side, whether a judgment may be
entered in accordance with the summary judgment standard.” Marciniak v. Prudential
Fin. Ins. Co. of Am., 184 F. App’x 266, 270 (3d Cir. 2006).
III.
Defendants’ Motion for Summary Judgment
GTL seeks judgment as to all remaining claims against it. It argues (A) that the
CFA claims do not apply to GTL because they interfere with ICS regulation by other
state and federal agencies; (B) plaintiffs alleging “unconscionable business practices”
under the CFA must show deceptive conduct, which Plaintiffs cannot; (C) the CFA’s
disclosure requirements do not apply to GTL; (D) the Takings claims under § 1983 fail
because GTL is not a “state actor” and because the claims are not ripe; and (E) the claims
for unjust enrichment fail because there is no evidence of unjust conduct, and because the
voluntary payment doctrine bars these claims. The Court now addresses each defense.
A. Conflicts between the CFA and State and Federal Statutes
Two related arguments form the bulwark of GTL’s motion for summary judgment:
(1) applying the CFA to GTL would encroach upon the Board’s exclusive authority to
regulate alternate operator service (“AOS”) providers pursuant to the AOSP Act, and (2)
permitting private actions against GTL under the CFA would create “actual” and
“potential” conflicts with existing state and federal ICS regulatory schemes. Both
arguments fail.
i. The AOSP Act does not Prohibit CFA Claims
The “strong and sweeping legislative remedial purpose apparent in the CFA”
creates a presumption that the CFA applies even to conduct regulated by other agencies.
Lemelledo v. Beneficial Corp. of Am., 696 A.2d 546, 553 (N.J. 1997). “The CFA
explicitly states that the rights, remedies and prohibitions that it creates are cumulative to
those created by other sources of law.” Id. (citing N.J.S.A. § 56:8-2.12). The New Jersey
Supreme Court has explained that the CFA’s cumulative reach and its creation of a
private cause of action “reflect an apparent legislative intent . . . to delegate [] authority
5
among various governmental and nongovernmental entities, each exercising different
forms of remedial power.” Id.
Nevertheless, GTL claims that the AOSP Act explicitly precludes CFA application
by the following language:
Notwithstanding the provisions of [the Telecommunications Act] or any
other law to the contrary, the Board of Public Utilities shall regulate the
rates and terms and conditions of service of an alternate operator service
provider, in a manner consistent with federal law, and use any other means
necessary pursuant to law, rule, or regulation to protect the users of the
services of an alternate operator service provider.
N.J.S.A § 48:2-21.23.
GTL’s argument falls short for two reasons. First, genuine issues of material fact
remain as to whether GTL violated the Takings Clause by imposing excessive fees and
rates. See infra at 14. If the jury finds that compliance with BPU’s regulations was
nevertheless unconstitutional, then the Board was not acting “in a manner consistent with
federal law” when it passed these regulations, and was therefore not acting within its
statutory limits. See Lourdes Med. Ctr. of Burlington Cnty v. Board of Review, 963 A.2d
289, 312 (N.J. 2009) (citations omitted) (“If a regulation is plainly at odds with the
statute, the court must set it aside . . . the meaning of enabling legislation is pivotal to any
analysis of the legitimacy of a rule.”). That would leave a regulatory vacuum,
appropriately filled by the “cumulative” enforcement authority of the CFA. See
Lemelledo, 696 A.2d at 551.
Second, the Court is skeptical that the legislature intended the AOSP Act to
preempt CFA actions against ICS providers. When New Jersey’s Legislature wishes to
create exclusive jurisdiction, it usually does so expressly. See, e.g., Doug Gant , Inc. v.
Create Bay Casino Corp., 232 F.3d 173 (3d Cir. 2000). In Doug Gant, the Third Circuit
dismissed CFA claims brought against certain casinos, because the authorizing statute
imbued the Casino Control Commission with “exclusive jurisdiction over all matters
delegated to it or within the scope of its powers under the provisions of this act.” 232
F.3d at 188 (citing N.J.S.A. § 5:12-133b.). No such language appears in the AOSP Act.
In fact, the legislature amended the CFA in 2009 to impose disclosure requirements on
“prepaid calling service providers and prepaid calling card distributors.” N.J.S.A. § 56:8176. Even if GTL were not a “prepaid calling service provider,” other AOSP providers
probably are. This indicates that, in amending the CFA, the legislature intended to create
“complementary, overlapping, and comprehensive” regulations. Lemelledo, 696 A.2d at
551.
6
ii. Purported Conflict with State ICS Regulation
A functioning administrative state cannot subject an entity to conflicting
regulations. See id. at 552. Thus, a “direct and unavoidable” conflict with another
regulatory scheme renders the CFA inapplicable. Id. at 554. To overcome the
presumption of CFA’s applicability, however, the Court “must be convinced that the
other source or sources of regulation deal specifically, concretely, and pervasively with
the particular activity, implying a legislative intent not to subject parties to multiple
regulations that, as applied, will work at cross-purposes.” Id.
GTL argues that the Board has set rate limits for intrastate AOS providers, and
that GTL cannot be punished so long as it has complied with those limits. N.J.A.C. §
14:10-6.2. For instance, in 1998, for calls up to five minutes, the Board set a maximum
rate of $2.75 for intrastate calls and $4.25 for intrastate calls that require live operator
assistance. Id.; see In re Regulation of Operator Serv. Providers, 778 A.2d 546, 562 (N.J.
Super. App. Div. 2001). As Plaintiffs argue, however, these rates have not been updated
in 20 years. Pls.’ Br. at 11. Telephone calling rates have dropped precipitously over that
span. Yow Dep Tr. 130:21-131:2. See 778 A.2d at 580 (acknowledging that the
“constantly changing character of the telecommunications industry” necessitated
expedited Board review of rate caps); FCC 13-113 ¶ 29 (“[T]he costs of providing ICS
are decreasing, in part due to technological advances”). Indeed, evidence in the record
suggests that costs to GTL had already decreased significantly by the beginning of the
class period in 2006. Finneran Dep. 143:13-144:11. Meanwhile, Plaintiffs allege that
GTL has routinely violated BPU’s limits with impunity, avoiding the large monetary
penalties that should have been deployed under BPU’s penalties provision. See N.J.A.C.
§ 14:10-6.3.
Given its failure to update rate limits or enforce its own rules, the Board has failed
to “regulate” GTL in a manner that would preclude private causes of action under the
CFA’s broad remedial framework. No “direct and unavoidable conflict exists between
application of the CFA and application of [the AOSP Act],” because the AOSP Act is not
being applied in the ICS context. See Lemelledo, 696 A.2d at 554. Accordingly, the
CFA’s “cumulative remedies” are simply doing regulatory work left undone by the
Board. Prohibiting these private actions would expose Plaintiffs to the dangers of singleagency regulation foreseen in Lemelledo:
When remedial power is concentrated in one agency, underenforcement
may result because of lack of resources, concentration on other agency
responsibilities, lack of expertise, agency capture by regulated parties, or a
particular ideological bent by agency decisionmakers . . .
Underenforcement by an administrative agency may be even more likely
where . . . the regulated party is a relatively powerful business entity while
the class protected by the regulation tends to consist of low-income persons
with scant resources, lack of knowledge about their rights, inexperience in
7
the regulated area, and insufficient understanding of the prohibited practice.
The primary risk of underenforcement—the victimization of a protected
class—can be greatly reduced by allocating enforcement responsibilities
among various agencies and among members of the consuming public in
the forms of judicial and administrative proceedings and private causes of
action.
Lemelledo, 696 A.2d at 553 (citing Arcadia v. Ohio Power Co., 498 U.S. 73, 87–
88 (1990) (Stevens, J., concurring)). See Slackman, supra note 5, at 524 (“Cost regulation
is necessary in the inmate payphone industry because payphone services have no close,
legal substitutes, inmate demand is inherently inelastic, and the inmates' position as thirdparty beneficiaries incentivizes higher monetary commissions instead of lower end-user
prices.”). Defendants respond that these concerns “do not apply here, as there is no
evidence of ‘under enforcement’ [sic].” But evidence exists in the form of ossified
ratemaking. GTL cites to N.J.A.C. § 14:10-6.1(h) for the proposition that the Board “has
done exactly what the Legislature instructed, including exercising authority to
‘investigate’ and ‘evaluate compliance’ . . . and imposing regulatory violations.” Defs.’
Br. 15. Yet there is scant evidence in the record of the Board actually doing any of these
things, at least in the ICS context.
Ultimately, BPU’s inactivity led to legislative intervention. In 2014, the AOSP Act
was amended to require—as opposed to permit—the Board to regulate calling rates. In
2016, the Governor signed into law a statute banning site commissions; limiting domestic
rates to 11 cents per minute; and prohibiting per-call surcharges, account set up fees, bill
statement fees, monthly “account maintenance” charges, and refund fees. N.J.S.A. 30:48.12. Clearly, the legislature is not content leaving regulation of ICS to the BPU.
iii. Purported Conflict with Federal ICS Regulation
Finally, GTL argues that the CFA claims potentially interfere with the FCC’s
authority to regulate interstate calls, which account for about 10% of GTL’s calls. See
Global Tel*Link, 866 F.3d at 412 (finding that the FCC lacked authority to set intrastate
rate caps). The FCC has authority to set rate caps on interstate calls to ensure that charges
are “just and reasonable.” Id. at 401 (quoting 47 U.S.C. § 201(b)). The FCC made no
attempt to set rate caps until its 2013 interim Order, which GTL and other ICS providers
petitioned to the D.C. Circuit. Id. at 405 (citing 28 FCC Rcd. 14107, 14114-15 (2013)).
The caps set by the FCC’s final Order in 2015 were struck down by the D.C. Circuit. Id.
412. Thus, to date, the FCC has not established valid rate caps for ICS of any kind, and
for most of its history has been inclined to leave ICS regulation to the states. It is possible
that the FCC will someday preempt state regulation of interstate ICS by imposing rate
caps that survive judicial review. Even so, rates deemed “just and reasonable” under the
Telecommunications Act, § 201(b), are unlikely to be “unconscionable” under the CFA.9
9
As a matter of last resort, GTL maintains detailed call records that would allow a claims
8
For these reasons, the prospect of federal preemption is overstated and offers no basis for
summary judgment.
B. “Unconscionable Commercial Practices” under the CFA do not Require
Deception (Count One)
Federal courts sitting in diversity apply substantive state law, as interpreted by the
state’s highest court. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). The relevant CFA
provision states as follows:
The act, use or employment by any person of any unconscionable
commercial practice, deception, fraud, false pretense, false promise,
misrepresentation, or the knowing concealment, suppression, or omission
of any material fact with intent that others rely upon such concealment,
suppression or omission, in connection with the sale or advertisement of
any merchandise or real estate, or with the subsequent performance of such
person as aforesaid, whether or not any person has in fact been misled,
deceived or damaged thereby, is declared to be an unlawful practice.
N.J.S.A. § 56:8-2 (emphasis added).
GTL argues that “an unlawful practice” always involves deceptive conduct, which
turns on each plaintiff’s individual circumstances. Indeed, this CFA provision is
ambiguous, and the New Jersey Supreme Court has not directly ruled on whether an
“unlawful practice” requires deceptive conduct. Accordingly, this Court must determine
how the state’s highest court “would” rule if it were faced with this issue. Comm’r of
Internal Revenue v. Bosch, 387 U.S. 456, 465 (1967). For the reasons below, the Court
finds that liability for unconscionable business practices under N.J.S.A. § 56:8-2 does not
always require that a plaintiff show deception. In light of the Court’s interpretation of §
56:8-2, genuine issues of material fact exist as to whether GTL’s rates and fees were, in
totality, unconscionable.
i.
Unconscionability Does Not Necessarily Require Deception
New Jersey courts “ascribe to [] statutory words their ordinary meaning and
significance . . . and read them in context with related provisions so as to give sense to
the legislation as a whole.” DiProspero v. Penn, 874 A.2d 1039, 1048 (N.J. 2005). The
Merriam-Webster Dictionary defines “unconscionable” as “(1) not guided or controlled
by conscience . . . (2)(a) excessive, exorbitant . . . (b) lying outside the limits of what is
reasonable or acceptable.” Webster’s Third New International Dictionary (3d ed. 1993)
(emphasis added). Black’s Law Dictionary defines “unconscionable” as:
administrator to weed out the roughly 10% of GTL calls that crossed state lines.
9
1. (Of a person) having no conscience; unscrupulous . 2. (Of an act or transaction) showing no regard for
conscience; affronting the sense of justice, decency, or reasonableness . Cf. CONSCIONABLE. 3. Much more
than is acceptable or reasonable . 4. Shockingly
unjust or unfair .
Black's Law Dictionary (10th ed. 2014). None of these iterations of “unconscionable”
implies deception. Further, the CFA provision is crafted in the disjunctive: it proscribes
“unconscionable commercial practices . . . . or knowing concealment . . . of any material
fact . . . .” To be sure, the other words listed in § 56:8-2 deal with some type of deceptive
conduct. See Soto v. Scaringelli, 917 A.2d 734, 742 (2007) (applying the interpretive
canon noscitur a sociis: “that the meaning of an unclear word or phrase should be
determined by the words immediately surrounding it.”). Nevertheless, to hold that
“unlawful conduct” requires deception would arguably “render the phrase
[unconscionability] superfluous.” Wilson v. Brick Twp. Zoning Bd. of Adjustment, 963
A.2d 1208, 1216 (N.J. App. Div. 2009).10 At least several intermediate New Jersey court
decisions support the Court’s reading of the CFA, including D'Ercole Sales, Inc. v.
Fruehauf Corp., 501 A.2d 990, 996 (N.J. App. Div. 1985):
The statutory elements of N.J.S.A. 56:8-2 are in the disjunctive rather than
the conjunctive. As such, a violation may occur if there is a showing of
“unconscionable commercial practice.” Hyland v. Aquarian Age 2000, Inc.,
148 N.J. Super. 186, 191, 372 A.2d 370 (Ch.Div.1977). There need be no
showing of a deceptive or fraudulent act.
501 A.2d at 996. See State v. Hudson Furniture Co., 398 A.2d 900, 902 (N.J. App. Div.
1979) (“[A] violation is complete if an unconscionable practice is proved; a deceptive or
fraudulent act need not also be shown.”).
In response, GTL points to Quigley v. Esquire Deposition Services LLC, which
found that a cause of action under the CFA could not be made “solely by an allegation
that the price of a product was excessive, without consideration of the manner in which it
was marketed.” 975 A.2d 1042, 1048 (N.J. Super. Ct. App. Div. 2009). The court
reasoned that “in a capitalist society . . . prices are ordinarily established by the
marketplace rather than by a government agency . . . .” Id. Quigley could not be further
off point. The instant case is not “solely” about excessive rates, but also about “the
manner in which” those rates were established—through site commissions and ancillary
fees. From the end user’s perspective, there was no marketplace. GTL enjoyed a
10
Punctuation can be an important indication of legislative intent. Here, the absence of a colon or
semicolon after “unconscionable business practices” indicates that the words following that
phrase are not examples of it, but rather alternative forms of “unlawful conduct.”
10
monopoly over individuals held captive “by a government agency.” Id. If anything,
Quigley implies when to permit CFA claims absent proof of deceptive conduct. See FCC
13-113 ¶¶ 40-41 (finding that “competition for ICS contracts may actually tend to
increase the rate levels in ICS contract bids where site commission size is a factor in
evaluating bids,” while the “interest in just and reasonable rates is not necessarily
represented in bidding or negotiation.”).
These intermediate appellate decisions align with the New Jersey Supreme Court’s
keystone interpretation of the CFA in Kugler v. Romain, 279 A.2d 640 (N.J. 1971). The
court explained that “unconscionability is an amorphous concept obviously designed to
establish a broad business ethic,” such that courts must “pour content into it on a case-bycase basis.” Id. The legislature sought protection for “large segments of disadvantaged
and poorly educated people” from “grievous exploitation by vendors using such devices
as high pressure salesmanship, bait advertising, misrepresentation of prices, exorbitant
prices and credit charges, and sale of shoddy merchandise.” Id. at 648-49 (emphasis
added). The court held that extracting a fee “excessive in relation to [a] defendant’s cost”
falls within the ordinary meaning of “unconscionable.” Id. at 651. The court further
explained:
The intent of the clause is not to erase the doctrine of freedom of contract,
but to make realistic the assumption of the law that the agreement has
resulted from real bargaining between parties who had freedom of choice
and understanding and ability to negotiate in a meaningful fashion . . .
The standard of conduct contemplated by the unconscionability clause is
good faith, honesty in fact and observance of fair dealing. The need for
application of the standard is most acute when the professional seller is
seeking the trade of those most subject to exploitation—the uneducated, the
inexperienced and the people of low incomes. In such a context, a material
departure from the standard puts a badge of fraud on the transaction and
here the concept of fraud and unconscionability are interchangeable.
We have no doubt that an exorbitant price ostensibly agreed to by a
purchaser of the type involved in this case—but in reality unilaterally fixed
by the seller and not open to negotiation—constitutes an unconscionable
bargain.
Kugler, 279 A.2d at 652 (emphasis added). See also D'Ercole Sales, Inc., 501 A.2d at
998.
Inmates and their family members are often exceptionally vulnerable people.
Plaintiffs allege they were compelled to pay excessive rates that, while subject to
competition in other settings, were “unilaterally fixed by the seller and not open to
11
negotiation.” Kugler, 279 A.2d at 652. Plaintiffs had absolutely no role in negotiating
telephone charges and fees, which were instead a function of revenue-sharing agreements
between GTL and the correctional facilities. See, e.g., Van Nostrand Decl., Ex. H Essex
County Decision Memorandum (“[T]his is a revenue generating arrangement.”). Many
Plaintiffs, like Betty King, who at various times had five family members incarcerated in
New Jersey, accepted exorbitant rates out of desperation:
[DEFENSE COUNSEL]: Do you believe that GTL tried to trick you in any
way when you were using their services?
THE WITNESS: I believe they cheated us out of our money, because you
just . . . If you haven’t been there, you don’t know . . . I needed to be able to
speak with my children, my sons, my brother, and my husband. I wasn’t
worried about the rates. I wasn’t concerned about that. It’s like I’ll cross
that bridge when I got there. I knew it was too much, but that was my only
way. That was the only way.
King Dep. Tr. 111:17-112:9; see M. Skladany Dep. Tr. 28:23-25 (“[P]eople were
always . . . talking about the phone rates, how outrageous and, you know, felt like we
were being extorted.”).11
Finally, the Court is mindful that its interpretation of the CFA deviates from Ciser
v. Nestle Waters N. Am. Inc., 596 F. App’x 157 (3d Cir. 2015), in which the Third Circuit
declared that, “[u]ntil the New Jersey Supreme Court decides otherwise, we read
precedent as suggesting that the CFA requires some element of deceptive conduct . . . to
be actionable as an unconscionable practice.” Ciser, 596 F. App’x at 162. Ciser,
however, is expressly “non-binding precedent.”12 Its facts are entirely unrelatable to the
facts now before the Court,13 and the court made no reference to either of the above state
decisions that found unconscionability without deception. See supra at 10. Again, the
Court is obligated to construe the statute as it believes the state’s highest court would.
ii.
Unconscionability Presents a Genuine Question of Material Fact
The Court will not determine whether the rates and fees were so excessive as to be
“unconscionable.” That is a question of fact that should be decided by a jury. See, e.g.,
Leon v. Rite Aid Corp., 774 A.2d 674, 678 (N.J. Super. Ct., App. Div. 2001). Because
As the state legislature found, “where a captive market exists for competitive
telecommunications services, market conditions are not always able to protect the public
interest.” N.J.S.A. § 48:2-21.22.
12
596 F. App’x at 164 (“This disposition is not an opinion of the full court and pursuant to I.O.P.
5.7 does not constitute binding precedent.”).
13
The plaintiff in Ciser was a business owner who misconstrued an arcane contractual provision
regarding late-fee penalties in an arms-length purchase of water bottles. 596 F. App’x at 157-58.
11
12
GTL incorrectly assumed that the CFA requires deception, its papers failed to adequately
address Plaintiffs’ argument that rates and fees are grossly excessive in relation to GTL’s
costs. See Defs.’ Reply Br., n. 5, 13. The inquiry should consider both the commission
rates and ancillary fees—the total financial burden imposed on Plaintiffs in relation to the
costs of providing those services. The record is rife with contradictory statements about
the costs of providing ICS as well as the security and monitoring costs specific to
individual state and county facilities serviced by GTL in New Jersey. 14 GTL’s motion for
summary judgment as to Count One under N.J.S.A. § 56:8-2 is DENIED.
C. CFA Disclosure Requirements, N.J.S.A. § 56:8-176 (Count Two)
Count Two alleges that GTL failed to comply with certain disclosure requirements
applicable to “prepaid calling service providers and prepaid calling card distributors”
pursuant to a 2009 amendment of the CFA. N.J.S.A. § 56:8-176. GTL moves for
summary judgment on the ground that it is not a “prepaid calling service provider” and
thus not subject to regulation under N.J.S.A. § 56:8-176. The term “prepaid calling
service” means “any prepaid telecommunications service that allows customers to
originate calls through a local, long distance or toll-free access number and authorization
code, whether manually or electronically dialed.” § 56:8-175. GTL argues that it
permitted inmates to call non-inmates directly without using an “access number” or
“authorization code.” Defs.’ Br. 24. This does not seem consistent with the record.
Although the law does not define “access number” or “authorization code,” inmates were
generally required to type a sequence of numbers into the telephone before dialing out.
See, e.g., M. Skladany Dep. 75:15-22, 106:7-9; Taylor Decl., Ex. 10, Inmate Handbook at
34.
While the individual Plaintiffs concede that GTL provided access to certain
information as to rates, charges, and deposit fees, material questions of fact remain as to
whether GTL disclosed all necessary information regarding surcharges under N.J.S.A. §
56:8-176 (h). See Pls. Opp. Summ. J. at 22. The motion for summary judgment as to
Count Two is DENIED. Of course, Defendants may be found liable only for those
violations taking place after the provision’s 2009 enactment. Liability will depend on the
individual circumstances of each Plaintiff; this is not a classwide claim.
D. Takings Claim under Section 1983 (Count Six)
Plaintiffs’ § 1983 claim alleges that GTL violated the Takings Clause of the Fifth
Amendment by extracting “excessive and unconscionable charges . . . without just
compensation.” Compl. ¶ 134. GTL argues for summary judgment on two distinct
grounds. First, GTL alleges that it cannot be liable under § 1983 because it is not a “state
Dr. Epstein suggests that the rates were “reasonable” because they resulted from competitive
bidding, Epstein Dep. ¶ 30, but the bidding process was anti-competitive from the viewpoint of
end users. See Pls.’ Opp. Br. n. 14, at 20.
14
13
actor.” Second, it argues that the claims are not ripe because Plaintiffs have not exhausted
all administrative remedies. Both arguments fail.
Liability under § 1983 extends only to “persons” acting “under color of state law.”
Leshko v. Servis, 423 F.3d 337, 339 (3d Cir.2005) (citation omitted). Nevertheless, a nongovernment entity may be a “state actor” under § 1983 under certain circumstances, as
when a private actor and government work or operate together to achieve common
interests. Lugar v. Edmondson Oil Co., 457 U.S. 922, 941 (1982). The relevant inquiries
are whether GTL was a “willful participant in a joint activity with the State or its agents,”
id. at 941, and whether the State provided “significant encouragement, either overt or
covert,” for the activity. Kach v. Hose, 589 F.3d 626, 648 (3d Cir. 2009).
The record clearly shows that GTL was a “willful participant” with the
government in setting rates and fees for New Jersey correctional facilities. GTL made a
calculated business decision to provide ICS to New Jersey facilities. The State and
counties provided “significant encouragement” by awarding contracts based largely on
which provider could generate the most revenue through site commissions. GTL
responded by offering commission rates in excess of 40% of calling revenue, which the
DOC and counties accepted. This was not a normal government contractor relationship.
The facilities could not provide ICS without GTL, and GTL could not charge the rates it
did without enjoying a state-sponsored monopoly over its end users. This is a case in
which “the [s]tate has so far insinuated itself into a position of interdependence with the
acting party that it must be recognized as a joint participant in the challenged activity.”
Kach, 589 F.3d at 646 (citations omitted).
There is no dispute that higher commissions led to higher calling rates and fees,
which form the basis for Plaintiffs’ Takings claim. See Kach, 589 F.3d at 649 (“[T]he
focus of our inquiry is not on whether the state exercises control over a putative state
actor as a general matter, but whether the state has exercised control over the particular
conduct that gave rise to the plaintiff's alleged constitutional deprivation.”).15 And while
providing telephone services is not itself a “traditional public function,” operating
correctional facilities is.
Defendants further argue that the claims are not ripe because Plaintiffs have not
exhausted all administrative remedies. Yet there does not appear to be any state
administrative remedy available. See Knick v. Twp. of Scott, 862 F.3d 310, 323 (3d Cir.
2017), cert. granted in part sub nom. Knick v. Twp. of Scott, Pa., 138 S. Ct. 1262 (2018).
Plaintiff Mark Skladany attempted unsuccessfully to file written grievances at multiple
facilities regarding what he perceived to be excessive phone rates. M. Skladany Dep.
30:19-33:6. And although the BPU has authority to fix rates, it does not appear
15
Of course, contracting with a government agency does not automatically make the contractor a
state actor, and most contractors are not state actors.
14
authorized to provide the sort of compensatory relief sought by Plaintiffs. See N.J.S.A. §
48:2. To the extent a petition for a rulemaking qualifies as administrative relief, the BPU
already rejected a Petition that closely tracked the claims in this case. Van Nostrand
Decl., Exs. 2, 3. Without an administrative process by which putative class members may
apply for “just compensation,” to require Plaintiffs to exhaust administrative remedies
would be futile.
GTL’s motion for summary judgment is DENIED as to Count Six, the Plaintiffs’
Takings claim. The Court finds as a matter of law that GTL was a “state actor” here, and
thus a “person” amenable to suit under § 1983.
E. Unjust enrichment (Count Four)16
Unjust enrichment requires showing that a “defendant receive a benefit and that
retention of that benefit without payment would be unjust.” VRG Corp. v. GKN Realty
Corp., 641 A.2d 519, 526 (N.J. 1994). GTL argues that summary judgment is appropriate
because (1) there is no evidence of any unjust conduct, since Plaintiffs “received exactly
what they bargained for,” and (2) the voluntary payment doctrine bars the claim. Defs.’
Br. at 25.
First, because there are genuine questions of material fact as to GTL’s costs, it is
impossible for the Court to decide whether GTL’s conduct was “unjust.” That question
will be answered by a jury. Further, the record demonstrates that no bargaining took place
between Plaintiffs and GTL, so it cannot be said that Plaintiffs “received exactly what
they bargained for.” Id. at 25. All bargaining occurred between GTL and government.
Second, the “voluntary payment doctrine” is an exception to unjust enrichment
that applies “where a party, without mistake of fact, or fraud, duress or extortion,
voluntarily pays money on a demand which is not enforcible [sic] against him, [so] he
cannot recover it back.” Simonson v. Hertz Corp., No. CIV.A. 1:10-CV-1585, 2011 WL
1205584, at *3 (D.N.J. Mar. 28, 2011) (citing Matter of New Jersey State Bd. Of
Dentistry, 423 A.2d 640, 643 (N.J. 1980)). The Court finds that questions remain as to
whether Plaintiffs were under duress at the time of payment. Pls.’ Br. n. 22, at 28.
Accordingly, GTL’s motion for summary judgment as to unjust enrichment is DENIED.
IV.
Plaintiff’s Motion for Partial Summary Judgment
Plaintiffs’ opposition to summary judgment includes a cross-motion for partial
summary judgment as to the issue of liability for the § 1983 Takings claims. They ask the
Court to hold that GTL’s rates and fees were “far more than a fair approximation of the
costs.” Pls.’ Br. at 26. GTL responds that granting summary judgment against it would
violate the “one-way intervention rule.” It further argues that genuine questions of
16
This claim is brought only by the individually-named Plaintiffs, not the entire class.
15
material fact remain as to whether GTL’s rates and fees were “far more than a fair
approximation of the costs.” Defs.’ Reply Br. at 20-21.
The “one-way intervention rule” prevents “members of the claimed class . . .
[from] await[ing] developments in the trial or [] final judgment on the merits in order to
determine whether participation would be favorable to their interests.” Am. Pipe & Const.
Co. v. Utah, 414 U.S. 538, 547 (1974). According to GTL, “[r]uling on Plaintiffs’ crossmotion would be prejudicial to GTL because, if the motion is denied, then putative class
members would not be bound; but if the cross-motion is granted, putative class members
could determine whether they wanted to join the class after GTL’s liability on the taking
claim had already had been determined.” Defs.’ Reply Br. at 19.
In this particular case, the Court finds no impropriety in deciding Plaintiffs’
motion for summary judgment in favor of GTL. As the Court has already indicated,
issues of material fact remain regarding the costs of providing ICS throughout the class
period. Further, GTL’s expert witness, Dr. Epstein, disputes Plaintiffs’ assumption that
charging 5 cents per minute would have been “a reasonable approximation of the cost of
providing ICS service plus a reasonable profit.” Pls.’ Br. at 26. Under these
circumstances, a jury trial is necessary. Plaintiffs’ cross-motion for partial summary
judgment is DENIED.
V.
CONCLUSION
For the foregoing reasons, Defendants’ motion for summary judgment and Plaintiffs’
cross-motion for partial summary judgment are DENIED.
/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
August 6, 2018
16
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